If Debt Financing Is Used, Which of the Following Is

question 97

Multiple Choice

If debt financing is used, which of the following is CORRECT?

• A) The percentage change in net operating income will be equal to a given percentage change in net income.
• B) The percentage change in net income relative to the percentage change in net operating income will depend on the interest rate charged on debt.
• C) The percentage change in net income will be greater than the percentage change in net operating income.
• D) The percentage change in sales will be greater than the percentage change in EBIT, which in turn will be greater than the percentage change in net income.
• E) The percentage change in net operating income will be greater than a given percentage change in net income.

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Definitions:

Equilibrium GDP

The point at which the aggregate supply and aggregate demand within an economy are equal, indicating a state of economic balance.

Recessionary Gap

The difference between the actual output of an economy and its potential output, occurring during periods of economic downturn.

Equilibrium GDP

The level of Gross Domestic Product (GDP) at which aggregate supply equals aggregate demand.

Full Employment GDP

The total market value of all final goods and services produced at a time when all available resources are fully employed.